U.S. stocks mark longest losing streak since 2008 credit crisis

NEW YORK — U.S. stocks fell hard Tuesday, marking their longest losing streak since the heart of the 2008 credit crisis, on investor worries about upcoming federal spending cuts and a likely stall in the recovery.

The Dow Jones Industrial Average fell 265.87 points, or 2.2 percent, to 11,866.62, its worst one-day loss since June 1. The eight-day losing stretch was the longest since October 2008, weeks after the collapse of Lehman Bros. and, by some measures, the peak of the U.S. credit crisis.

The S&P 500 posted a new closing low for 2011 and turned negative for the year.

The just-ended battle over lifting the U.S. debt ceiling means the government avoided default, but it also rattled investors just coming to grips with a shaky U.S. economy.

"This debate has left a cloud of uncertainty over the market in terms of what it means. The good news is we're not going to default. The bad news is we don't know what is coming out of Washington. There's a loss of confidence and a rethinking of the profit outlook going out a few years," said Nick Kalivas, equities and fixed-income analyst at MF Global.

Stock losses mounted after the Senate, by a vote of 74 to 26, approved a proposal to increase the $14.3 trillion debt limit by up to $2.4 trillion in two stages and — by the Congressional Budget Office's tally — reduce deficits by $2.1 trillion over a decade.

Growing fears that lawmakers would miss the Treasury's Aug. 2 deadline for raising the ceiling had contributed to a sell-off in the past two weeks, setting up some expectations for a relief rally if legislators reached a compromise over the bill.

The S&P 500 index closed down 32.89 points, or 2.6 percent, to 1,254.05, its worst percentage drop since Aug. 11, 2010, and its lowest close since Dec. 20. The seven-day streak of losses was also the worst since October 2008.

Stocks had started the day sharply lower after the Commerce Department reported that consumers had trimmed their spending in June for the first time in almost two years.

Moody's Investors Service said the United States will retain its triple-A bond rating after passage of legislation to boost the debt ceiling. But the rating agency said it is lowering the outlook for possible future changes to negative. Moody's said in a statement. Fitch Ratings took similar action earlier in the day. A little-known Chinese ratings agency has downgraded the United States from A+ to A. The move by Dagong Global Credit Rating Co. is unlikely to affect U.S. borrowing rates, but it but reflects worldwide pessimism about the debt battle. Dagong hopes to compete with global ratings agencies.